This is a bi-annual report that provides projections and for domestic and international tourism over the next three years and is a reputable benchmark for the industry. It also reflects on the latest trends in the industry.

In our latest report, the tourism dashboard has lit up with signs that Australians are rekindling their love affair with local holiday destinations, with much of the shift owed to the 25% improvement in relative prices as a result of the Australian dollar’s depreciation over the past year.

After a decade growing at an average rate of 11% a year, growth in outbound holiday travel by Australians fell marginally over the year to June.

There’s lag between currency movements and travel patterns and, as the dollar has fallen, travellers have adjusted travel across all feasible dimensions. Australia’s holiday hotspots are back on travellers’ itineraries and domestic overnight holiday trips have grown 4.0% overall, and 5.3% in terms of interstate trips, including 27% growth in domestic holiday travel to Tasmania

In addition to this, after 10 consecutive years of widening, the difference between numbers of Australians holidaying overseas and visitors coming to our shores narrowed in the first half of June 2015, with the majority of those choosing to go overseas opting for cheaper destinations, shorter trips and reduced per day spending.

While the highlight for domestic travel has been in the strengthening of the holidaymaker segment, the mantle for fastest growth still rests with corporate travel. Despite sluggishness in the local economy, domestic travel for business and employment purposes grew at 14% during last financial year.

International visitation

Inbound arrivals maintained their momentum through the first half of 2015, albeit at a marginally more moderate pace. Compared to the same period a year prior, arrivals grew 6.6% over the 12 months to June. Leisure travel remained among the major drivers, posting growth of 5.4% and contributing a third of the extra volume.

Other key highlights included:

China edging closer to joining New Zealand in the illustrious million visitors per year club, outperforming its last five years to grow by 22%

Visitation from India grew 19% as cricket fans flocked to Australia for the ICC Cricket World Cup

Visitors from the US grew 9.0% and New Zealand 3.6% to out-pace historic trends

The spoils of growth were distributed relatively widely across the nation, with only the ACT and South Australia failing to capitalise on inbound tourism flows

In South Australia, international visitation fell around half of a percentage point despite the number of Indian visitors nearly doubling due in large part to the cricket

Tasmania topped the growth league table with international visitor numbers growing 28% boosted by a sharp increase among Chinese and Indonesian travellers

Victoria saw the nation’s second fast growth in international visitor arrivals, with impressive growth of 12%.

The tourism outlook

Looking forward, the fundamentals for Australian tourism remain aligned for growth. International visitor numbers are forecast to grow at above the 4.5% five-year trend pace, increasing at an annual rate of 5.2% per year over the period to December 2017.

Domestic travel conditions are improving too, our forecasts for domestic travel have been upwardly revised, with both visitor numbers and nights now forecast to grow 2.7% per year to December 2017 as the local leisure segment continues to gather pace.

Hotels

The first half of 2015 was a modest period for Australia’s hotel sector. Strong growth in tourism flowed through only partially to increasing demand for commercial accommodation. Room nights sold were up 2.5% over the year to June – well shy of the growth in overnight travel. Nevertheless, the national trend of demand outpacing supply continued and Australia’s national average occupancy pushed one percentage point higher to 68%.

Fortunes were mixed across the major markets, with key Outlook highlights including:

Queensland’s beaches posted the biggest gains in occupancy, with the Gold Coast and Tropical North Queensland recording increases of 4.3% and 3.5%, respectively, on the same period last year

The mining hubs lagged as supply increases combined with softening demand dragged both occupancy and room rates lower in Brisbane, Perth and Darwin

Darwin was hit particularly hard, with occupancy falling 10% over the year to June

National average daily rate (ADR) increased at a trend rate of 2.5% for the year to June – a touch below its five year average of 3.3%

Sydney, with the highest hotel occupancy, saw room rate growth of 3%, while rates in Melbourne grew 3.5% for the year to June

The Gold Coast led the way among the major markets, with ADR growth of 4.4%.

Hotel market outlook

The forward pipeline of new hotel developments remains steady, with 67 properties on the cards for the next two and a half years.

Key Outlook forecast points, include:

8,600 rooms are expected to be added to the nation’s inventories over the course of the next two and a half years, pushing supply higher at an average annual pace of 1.3%

Supply growth outlook is led by Perth, with expectations of an additional 2,300 rooms by end 2017

Over the next three years, supply growth is expected to be healthy, but more moderate, in Brisbane (growth of 5.0% per year) and Adelaide (3.6% per year)

In Sydney and Melbourne, where 90% average occupancy is in sight, supply is still forecast to trail demand despite a number of high profile projects coming onto the market over the next two years

The projected national performance outlook remains one of demand growth (2.5% per year) outstripping supply growth (1.3%) and occupancies forecast to climb 1.5 percentage points to just above 70% by December 2017.

The range of forecast performance across markets is widening as the sector’s growth drivers shift. With corporate travel following the nation’s economic transition back to the south east, so too is short stay accommodation demand putting further pressure on the already stretched Sydney and Melbourne markets.

At the same time, a resurgent domestic leisure segment is buoying demand for holiday hot spots from Tasmania to Queensland’s beaches and emerging Asia continues to propel markets successful in luring these high growth segments. Indeed, it is the Gold Coast and Hobart that are projected to post the largest occupancy gains.

The single biggest driver of the performance divide is supply. With big pipelines across several cities edging closer to reality, occupancies will recede across several major markets. Room rates are projected to grow at an average 3.1%, nationally, and fastest in Sydney, Melbourne and Hobart.

Lachlan is a Partner in Deloitte Access Economics’ economic and policy advisory practice. His primary areas of specialisation are in education and tourism. In both sectors, Lachlan has led an expansive array of policy and commercial advisory work. Lachlan’s core expertise lies in the chief tools ...